Trade Policies and Developing Nations

The final act of the Uruguay Round recognized this distributive outcome. With respect to agriculture, it stated in stark terms the effects of the agreement on the least-developed and net-food-importing developing countries. These countries: Many experience negative effects with respect to supplies of food on reasonable terms and conditions. “Therefore, a special Decision sets out objectives with regard to the provision of food aid...

It also refers to the possibility of assistance from the International Monetary Fund and the World Bank with respect to the short-term financing of food imports”. (Haggard, p, 44) (emphasis added) In short, the agreement addressed the possible need to compensate losers, though it seemed that the amounts that could be made available fell well short of the costs these countries now faced--especially given the sharp fall in overseas development assistance (ODA) from the North.

Given this outcome, in which clear losses were to be expected for at least some developing countries, the Uruguay Round must be viewed as puzzling. It seems as if the developing countries ended up with a "sucker's payoff," accepting liberalization on near-equal terms with the North and then ending up with few if any gains to show for the effort. To be sure, that is what one would expect from the notion of "reciprocity as equivalent exchange" when big and small countries meet--since such exchange must proportionately weigh more heavily on the smaller country.

I have already argued that such a trade regime must be considered fundamentally unjust, rewarding as it does the advantages in bargaining strength that come from size and wealth. Why, then, did the developing countries ever accept the Uruguay Round? Wasn't it blatantly unjust? Was their desire for more equal treatment in the trading round misguided? It is likely too early to provide definitive answers to these questions. As the Uruguay Round provisions take effect over the next decade, the answers may well change, depending upon the actions taken by the advanced industrial economies.

For now, however, the following points seem clear. First, the developing countries placed a high value on the new procedure for dispute settlement established within the WTO. Since developing countries all too often have lacked retaliatory power against the industrial nations when it comes to unfair trade practices, they lobbied strongly for a more effective, multilateral dispute settlement regime. The new regime includes a strict timetable for hearing complaints and multilateral punishment of states that fail to remedy the policy in question.

(Harrison, p, 242) Whether this new regime is viewed as just depends upon the strength of developing country demands for its implementation, coupled with developed countries' respect for its findings. Second, the developing countries did win a gradual phase-out of the highly protectionist Multilateral Fiber Agreement (MFA)-clearly a more favorable outcome than no agreement at all on this important issue. The costs and benefits of dismantling the MFA, however, will not be felt equally across the developing world, and again new patterns of winners and losers will emerge.

Compensating the losers in such regions as Sub-Saharan Africa will likely be on the agenda in future trade rounds. Third, by participating actively in the round and by accepting the concept of equivalent reciprocity, the South won a greater voice in the setting of the trade agenda; in previous such negotiations it had remained largely on the sidelines. This suggests that the developing world has placed a big bet on its future growth prospects, and thus on its future ability to generate concessions from the North that it considers important.

Should growth rates tumble, and the hope for long-term income convergence with the North recede, new tensions in the status quo trade regime will surely emerge. Finally, it should be noted that the Uruguay Round agreement did not extinguish the principle of special and differential treatment. “In fact, the new WTO agreement respects this principle, in that "[developed] countries do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to trade of developing countries”.

(Harrison, p, 242) Yet as we have seen, developing countries' interests are unlikely to get much hearing in a trade round without acceptance of the reciprocity as equivalent exchange principle. These points make it clear that the developing countries did see real potential benefits in participating in the trade talks. But the realization of material benefits is critical if developing countries are to continue supporting the free trade agenda.

If the trade regime is to balance ratio with justice, it must develop its compensatory mechanisms--like foreign assistance in order to help those nations that take up-front losses accept greater liberalization. The advancement of justice may also require that industrial countries reconsider the implicit principle of reciprocity as equivalent exchange, and seek ways of moving toward a more proportionate scheme in which the differences in bargaining strength between big and small--and rich and poor--countries are recognized and rectified.

Once again, while the efficiency effects of trade liberalization may be great, the move to free trade cannot be considered just unless it is fair to all participants: where fairness means ensuring that all countries, especially the least advantaged, are able to compete with the richest states on as level a playing field as possible. Trade creates winners and losers both at home and abroad. Just as the international trade regime should work to achieve justice between nations, it must do the same within them.

Indeed, even if the international trade regime between countries were just, the domestic outcomes from trade may be unfair. In these cases, domestic income transfers will serve as a mirror image of foreign aid.

Bernard Hoekman and Michael Kostecki, The Political Economy of the World Trading System (New York: Oxford University Press, 1995) p. 241. (Hoekman, 241) David Cameron, "The Expansion of the Public Economy," American Political Science Review, 72 (1978) pp. 1,243-1,261. (Cameron, 1,243-1,261) Glenn Harrison, Thomas Rutherford and David Tarr, "Quantifying the Uruguay Round," in The Uruguay Round and Developing Countries, ed. Will Martin and L. Alan Winters (Washington, DC: World Bank, 1995) p. 242. (Harrison, 242)